For a company whose name originated from a railroad stop in Connecticut, this was the beginning of the line. Cannondale Corp. is moving ahead, and more like an express train than a local. It's not surprising that its unofficial motto is Speed Is Our Friend.
Under the brand name of Cannondale and Handmade in USA, the company manufactures and markets 66 models of bicycles for mountain, road, recreational and specialty uses. Their designs incorporate lightweight frames made of aluminum rather than steel. Under their CODA trademark, the company sell bicycle components including wheels, hubs, handlebars and saddles. Cannondale also has a line of 14 models of HeadShok front suspension forks, and in addition manufactures athletic apparel.
Cannondale sells through a network of more than 3,200 specialty bicycle retail stores and maintains its own field sales staff. With additional locations in the Netherlands, Australia and Japan, the company manages overseas sales in more than 60 countries.
Besides the obvious marketing functions and high visibility, Cannondale uses its sponsorship of racing teams like the Volvo-Cannondale Mountain, the New Balance-Cannondale and the SaecoCannondale teams as an important part of the company's R&D efforts. The company diligently uses the knowledge garnered from feedback from its racers to improve its bicycles as well as related products and equipment.
Presently, a large portion of Cannondale's R&D, expenditures for which have nearly doubled during the last fiscal year, is dedicated to the development of a line of 400cc motocross cycles. This entirely new line is scheduled for a 1999 rollout and will be the only brand to be manufactured in the U.S. The company is currently constructing additional facilities at its Pennsylvania manufacturing plant to accommodate manufacturing demands.
Cannondale boasts a strong balance sheet, with a current ratio of 3.91 and working capital of $85.4 million as of September 26. Cash flow from operations is positive. The company's debt position was enhanced in 1995 with the completion of a public offering netting proceeds of more than $22 million, which was used to reduce debt.
In 1998 the board of directors authorized a stock-repurchase program which resulted in the repurchase of approximately 1.3 million shares costing $20.2 million. The company has realigned its line of credit to accommodate this program and now has the ability to borrow funds to $70 million. On September 26 Cannondale's long-term debt level was at $63.3 million, with a total long-term debt-to-equity ratio of 0.87:1 with a net worth of $72.9 million.
The company has enjoyed a profitable track record for each fiscal year since 1994, as well as increasing annual sales. However, the increases in sales have been slowing: For the 1998 fiscal year the sales growth over 1997 was six percent, compared to a 12-percent hike from 1996 to 1997 and 19-percent growth from 1995 to 1996.
Profit margins grew by a percentage point a year from 1995 to 1997, when the margin was eight percent. That figure for 1998 was down to five percent, largely due to increased R&D for the new motocross cycle and increased SG&A.
Net income for the 1998 year was $9.4 million, or $1.08 per diluted share compared to 1997 net income of $13.5 million ($1.51 per diluted share). 1998 sales of $171.5 million compared to sales of $162.5 million for the previous year.
Cannondale is chugging along for the first quarter of its 1999 fiscal year (ending September 26, 1998) with net income of $712,000, or nine cents per diluted share, compared to $670,000 or (seven cents per diluted share) for the first quarter of FY 1998. Net sales also improved 23 percent for the first quarter 1999 at $42.2 million, compared to $34.3 million for the first quarter of 1998.
But the stock price has been losing steam. The company had enjoyed trading in the $23-per-share range a year ago, but in the past six months the stock has been trending downward, losing more than half its value. It closed November 2 at 10 1/2.
The Cannondale engines are stoked with new product development and increased sales, but speed is slowed due to seasonality, with the fourth and first quarters being the strongest. An undefined hazard on the road ahead is the cost related to the rollout of its motocross bike and the effect it will have on earnings per share. But Cannondale must avoid a stall. Keeping their schedule on-time may help their stock's performance get back on track.